Can You Sue a Borrower if You’re an Unregistered Lender?

A practical guide to Philippine lending regulation, disclosure rules, and (still) the “no-usury-cap” regime

Short answer: In many situations yes, you can still sue and recover the principal (and sometimes agreed interest) even if you operated without the proper lending license—but you expose yourself to administrative/criminal liability, the court can pare down or strike out your interest/penalties as unconscionable, and certain corporate or foreign-entity status issues can bar you from suing at all. This article explains the moving parts so you can assess your risk and strategy.

1) The legal moving parts (what body of law applies)

Civil Code (obligations & contracts).
- Loans are consensual contracts.
- Interest must be in writing to be demandable (Art. 1956).
- Courts may reduce penalties and liquidated damages if they’re iniquitous or unconscionable (Arts. 1229, 2227).
- Contracts with an illegal cause are void (Art. 1409), and the in pari delicto rules (Arts. 1411–1412) allocate losses when both parties violate the law.
Usury Law vs. reality today.
- The old Usury Law set ceilings, but monetary authorities suspended interest-rate ceilings decades ago.
- There is no fixed legal interest-rate cap today for ordinary loans; instead, courts police unconscionability (e.g., sky-high monthly interest + layered penalties + attorney’s fees can be slashed or nullified).
Disclosure statutes & consumer protection.
- Truth in Lending Act (TILA) requires clear disclosure of the finance charge and annualized cost before consummation. Non-compliance can trigger administrative/criminal liability and damages, but does not automatically void the loan.
- Financial consumer protection rules (BSP/SEC/IC + the FCP Act) prohibit abusive collection and unfair practices. Violations can lead to fines, license actions, and claims by borrowers.
Entity-based licensing regimes.
- Banks/quasi-banks/financing and lending companies need the relevant primary/secondary licenses (BSP/SEC).
- Lending companies (as a category) are generally corporations required to register with the SEC and obtain a certificate of authority before operating.
- Separate rules govern online lending platforms/apps (registration, disclosure, collection conduct, data privacy).

2) Do you need to be registered to “lend money”?

Occasional or one-off private loans by natural persons (e.g., you lend a friend or business partner funds) do not by themselves make you a “lending company.”
Habitually engaging in lending to the public as a business does. If you hold out to the public (or repeatedly extend loans for gain), you’re likely required to operate through a properly authorized entity (e.g., an SEC-registered lending company, financing company, or a bank).
Corporations that engage in the business of lending without a certificate of authority commit a regulatory violation. The absence of the license does not automatically void each loan—but it can seriously affect your remedies and risk profile (discussed below).

3) What happens if you’re unregistered but you still sue?

3.1 Can you file the case?

Natural person (Filipino, private, no license): You can generally file a collection case based on a promissory note/loan contract. The court won’t usually dismiss just because you lacked a “lending company” license if you were not operating as a lending business to the public. Expect the court to examine your pattern of lending and purpose.
Domestic corporation acting as a lending business without the SEC certificate: You can physically file a suit, but the borrower may raise your unlawful operation as a defense. Courts commonly allow recovery of the principal (to prevent unjust enrichment) yet are much stricter with interest, penalties, collection fees, and attorney’s fees—oftentimes reducing or deleting them. Separately, the SEC can still prosecute/administer penalties for operating without authority.
Foreign corporation without a license “doing business” in the Philippines: The Corporation Code/RCC bars an unlicensed foreign corporation that is “doing business” locally from maintaining an action in Philippine courts arising from that business, subject to narrow “isolated transaction” exceptions. If you fall into this bucket, your case can be dismissed unless you fit an exception.

3.2 If the case proceeds, what can you recover?

Principal: Usually recoverable—courts dislike unjust enrichment.
Contractual interest:
- Must be written. If you never put the interest in writing, courts award no contractual interest.
- Even if written, courts trim rates deemed unconscionable. High monthly compounding, heavy penalty interest, and stacked charges are prime targets for reduction.
Default/penalty interest and other charges:
- Subject to reduction if excessive relative to principal, term, and borrower’s default.
- “Interest on interest” (compounded default interest + separate penalty + daily late fee) is often pared back.
Attorney’s fees/collection fees:
- Not automatic. Courts require proof of actual services and reasonableness, and will reduce or deny overreaching fee clauses.

3.3 Could the whole loan be voided?

Usually not solely for lack of a lending license. Philippine courts distinguish between:
- Acts penalized by statute (administrative/criminal) but not declared void—contracts may still be enforceable to the extent consistent with public policy.
- Acts illegal per se/against public policy—contracts may be void.
That said, a court can refuse to enforce interest/penalties that reward an illegal enterprise, and in extreme cases may dismiss suits (e.g., for unlicensed foreign corporations doing business locally).

4) “No usury cap” ≠ “anything goes”: how courts decide unconscionability

In the absence of hard caps, judges use totality-of-circumstances tests, commonly weighing:

Effective annualized cost (interest + penalties + fees) vs. the risk profile and market norms for similar borrowers.
Clarity and timing of disclosures (were the finance charges, APR/EIR, and fees clearly shown before the borrower signed?).
Stacking of charges (separate late fees + penalty interest + interest-on-interest).
Collection conduct (harassment, public shaming, privacy breaches often backfire on the lender).
Bargaining power & sophistication of the borrower.
Duration of default and whether the charges wildly overshoot the principal.

Expect courts to allow reasonable compensation for the creditor’s forbearance but to strike windfalls.

5) Regulatory risk if you sue while unregistered

Administrative & criminal exposure. Filing a case can surface your non-compliance to the SEC/BSP and prompt investigations, fines, and criminal complaints.
“Clean hands” optics. Judges don’t reward non-compliance: they may slash charges and lecture the lender in the decision.
Discovery of abusive collection. If your papers or testimony reveal shaming texts, contact-harvesting, or threats, you risk counterclaims (privacy, consumer protection, damages).

6) Practical litigation pathways

Small claims (no lawyers required) or ordinary civil action depending on the amount. Small claims are faster but have threshold limits and streamlined evidence rules.
Document hygiene matters:
- Signed promissory note/loan agreement with clear written interest.
- Proof of release of proceeds (bank slip, acknowledgment).
- Statement of account showing how interest/penalties were computed.
- TILA-style disclosure (finance charge/EIR) if you were acting like a consumer lender.
- Demand letters sent properly.
What to plead: focus on principal and reasonable interest; avoid aggressive stacking that invites judicial pruning.
Settlement leverage: offer to waive penalties or cap interest in exchange for quick payment—judges appreciate reasonable settlements.

7) Common borrower defenses you should anticipate

Unlicensed operation (to attack your credibility and shrink recoverables).
No written stipulation of interest (kills contractual interest).
Unconscionable rates/charges (triggers judicial reduction).
TILA/FCP violations (damages/defenses re: undisclosed charges, abusive collection).
Forgery/alteration issues with the note or acknowledgment.
Payment/set-off (partial repayments not reflected).
Corporate/foreign-entity capacity (lack of authority or license to sue).

8) Compliance & risk-reduction checklist (for future loans)

Choose the right vehicle: If you’re in the business of lending, incorporate and obtain the proper SEC/BSP authority for your model (lending company, financing company, etc.).
Disclose clearly, in writing, up front: principal, net proceeds after fees, APR/EIR, schedule, default triggers, and all charges.
Keep rates defendable: Avoid compounding default interest plus layered penalties; pick one default remedy and keep it moderate.
Respect privacy & collection rules: No shaming, threats, or contact-scraping. Train staff and vendors.
Use clean templates: Written interest clause (Art. 1956), reasonable attorney’s fees (if any), and a governing-law/venue clause that’s fair—not oppressive.
Operational controls: KYC, affordability checks, and audit trails for disbursement and repayments.

9) Decision tree: Can you sue, and what will you likely get?

Are you a natural person with an occasional loan?
- Sue: Likely yes.
- Recover: Principal + written interest (subject to reduction).
Are you a domestic corporation that operated as a lending business without SEC authority?
- Sue: Generally yes, but expect the court to scrutinize.
- Recover: Principal for sure; interest/penalties trimmed or denied if excessive or tainted by non-compliance; regulatory exposure remains.
Are you a foreign corporation “doing business” in the Philippines without a license?
- Sue: Possibly barred from maintaining the action (unless an isolated transaction).
- Recover: You may need to regularize status first or pursue other avenues.

10) Practical pleadings tips (to maximize enforceability)

Lead with equity: Emphasize forbearance and good-faith extending of funds; avoid “punitive” math.
Show your math: Attach a clear amortization/interest computation. Opaque statements invite reductions.
Be reasonable in prayer: Ask for legal interest from default (if contractual is struck) and modest attorney’s fees.
Offer settlement options in your pre-trial brief and be prepared to restructure.

11) Key takeaways

You often can sue and recover, but licensing non-compliance is a major handicap: it weakens interest/penalty claims and opens regulatory risk.
The Philippines remains a no-ceiling jurisdiction for private lending rates, yet courts police excess and punish abusive collection.
For repeat or public-facing lending, regularize your status and tighten compliance—that’s the best way to protect both your receivables and your ability to sue.

Final note

This overview is for general information on Philippine law and practice. Specific outcomes turn on your facts (who the lender is, how often you lend, the paperwork, the rates, your collection conduct). For a sensitive or high-value account, consider a tailored legal review of your loan documents, disclosures, and regulatory posture before filing.